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On 27th of February 2023, the Tel Aviv Stock Exchange (TASE) proposed to the members of non-banking institutions (NBM) to expand activities to cryptocurrency trading. The proposal for this important change is now open to the public for comments and approval.
TASE Geared Up For Crypto Trading
The proposal to allow crypto trading has been made keeping in mind the issues the cryptocurrency market has faced over the past year. The collapse of the giants like FTX to cryptocurrency hackers has left the crypto market high and dry. In light of these turmoils, there has been a global awakening of the need for the right regulation in this sector.
The growth of the crypto sector has been phenomenal over the last few years. This remarkable development means the market is expanding far and wide and there has been increasing involvement from the customers. This results in growing demands and high-volume transactions. However, an operation on a such large scale will involve legal, logistical, and cyber security risks. To reduce these risks while continuing to meet the demands of this market there is a need for regulation in the cryptocurrency industry.
The Draft’s Proposed Structure
TASE’s proposed draft will expand the activities of NBM in Israel. Non-banking Members (NBM) are financial institutions without any banking license. They can facilitate services like money transmission, investment, brokerage, risk pooling, financial consulting, and check to cash. However, they cannot accept direct cash or deposit from customers.
These institutions run parallel with the banks in an economy to provide financial services. They hold advantage over banks for their ability to provide customer-oriented services. Some NBMs work in niche sectors, thus gaining more relevant knowledge and experience in that sector than regular banks.
If TASE’s draft gets approved, then NBM will have the power to provide services on cryptocurrency trading. The draft mentions the structure of how NBM will get involved in this operation. The clients of NBM can do two things. First, they can deposit fiat money which is to be used for cryptocurrency investment. Second, they can withdraw the profits made from those investments.
How Will It Work?
NBM will perform two functions to make it possible. It will first contact a cryptocurrency trading service which holds the license for such trades. Secondly, it will contact a licensed cryptocurrency custodial service provider.
A customer willing to buy cryptocurrency will need to deposit fiat currency in the NBM’s omnibus account that is with the service provider. When they receive a buying order, the service provider will complete the purchase with the money in this omnibus account. The transaction when completed will be recorded in the client’s account linked to NBM.
If a customer is willing to sell, then the cryptocurrency service provider will make the sale and send the amount to the omnibus account. Soon after, NMB will transfer the amount to the client’s account linked to NBM.
Israel’s Stand On Cryptocurrency So Far
Israel’s involvement with cryptocurrency regulation is not new. Israel has been one of the frontrunner nations to loudly advocate for cryptocurrency and regulation in this space. The nation has been attempting to streamline its protocols for the regulation of digital assets for some time now.
In September 2022, the country’s capital markets authority issued its first crypto license to a private company. During the same time, the nation also joined hands with the Bank for International Settlements (also known as BIS) to explore how central bank digital currencies (CBDC) can be implemented to improve on the shortcomings of cross-border payments.
A Step Towards Advancement And Development Of Its Capital Market
In November 2022, Isreal’s Chief Economist at the Ministry of Finance published a set of recommendations regarding digital assets regulation in Isreal. It raised various concerns such as risks involved in the cryptocurrency market, ways to bring the Israeli digital assets market to par with global demands etc.
Israel’s approach towards the advancement and development of its capital market is sharp and clear. The nation has a clear roadmap for policymaking in the digital assets industry. According to its new draft, Israel wants to impose regulation on the digital assets industry in the same capacity as that of the traditional assets industry.
Currently, there is no fixed and uniform global regulation that can govern the cryptocurrency market. It is only recently that the need for regulation in this space was realized. As a result, the regulation policy within this sector is still developing.
The Financial Action Task Force emphasises a state regulation that will consider the global guidelines and developments within this space. The IMF also recommends something similar. Cryptocurrency regulation processes in the EU and USA are not complete and have a long way to go.
Will Regulators Approve This Move?
TASE aims to fulfill many things with this one move. The public exchange looks to upgrade Israel’s capital market keeping in mind global standards and guidelines. It understands that this can only be achieved by imposing the right regulation in cryptocurrency trading.
As per the official draft, the proposed changes will be successful in bringing local regulation to the level of international regulation. This, in turn will give weightage to the Israeli capital market. Thus, it will help bring in more foreign investors and investments into the country’s capital market. Which in turn will lead to more revenue generation.
The move, when approved, will increase the role of NBMs. They all be able to help customers to invest locally and supervise the transactions. NBM thus will mitigate customer risks and losses.
TASE believes that this proposal will help in the development of its capital market. This framework will bring innovations and healthy competition to the market. The proposal will also be successful in reducing the risks associated with cryptocurrency trading.
The Tel Aviv Stock Exchange is now asking for suggestions and recommendations on this new initiative. Once it receives comments from the public, the proposal will then be forwarded to the Board of Directors for their final approval.
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